With the federal government due to hit its debt ceiling on Monday, the Treasury Department again will use financial maneuvers to stave off a default, including several involving federal retirement funds.
A letter to Congress Friday from Treasury Secretary Jack Lew notes that the government will be at its debt limit when a suspension enacted a year ago ends at midnight Sunday. “Because Congress has not yet acted to raise the debt limit, the Treasury Department will have to employ further extraordinary measures to continue to finance the government on a temporary basis,” he wrote.
One of those measures is called “disinvesting” the largest fund in the Thrift Savings Plan, the 401(k)-style retirement savings program for federal employees and military personnel, the government securities G fund. The fund consists of special-issue Treasury securities that are reinvested each business day and that count against the debt limit.
By not making the reinvestments, the Treasury in effect takes that obligation off the books, freeing up an equivalent amount of money for other uses. “After the debt limit impasse has ended, the G Fund is made whole. Therefore participants in the Thrift Savings Plan who contribute to the G Fund are unaffected,” the letter said.
As of February, the G fund held $193.9 billion of the $451.7 billion on investment with the TSP. The other TSP investment funds cannot be used for debt ceiling relief; they track stocks and other forms of bonds.
The Treasury has used a similar maneuver nine times in the past 20 years, most recently last February before the limit was suspended. Accounts continue to earn interest and the ability to take out loans or withdrawals against the money is unaffected.
“As always, we want to remind our participants that the G fund will be made whole once the debt ceiling issue is resolved and that participants will not lose a penny, thanks to the statutory protections afforded to the TSP,” TSP spokeswoman Kim Weaver said in an e-mail.
Although there is no direct financial impact on investors, in the past many have objected to use of the fund in that manner, since it consists of their personal investments, not a trust fund.
The Treasury meanwhile said it will also employ several other financial maneuvers, including one involving the federal retirement fund.
The Congressional Budget Office recently estimated that such measures would provide sufficient operating cash for the government until October or November.